Long Term Care deductions

[michvandu]

My husband is moving into a residential Memory Care facility.  He has Alzheimer's disease and is not capable of taking care of himself, or manage finances etc etc.  We will be paying for the facility with distributions from his Tradtional IRA.  The cost of his care will require more than doubling his IRA distributions and our income will go up to more than double our AGI from 2022.  What is the maximum we will be able to deduct on our income tax return.  I'm trying to figure out how much tax withholding (if any) we should request from the IRA distributions so we don't have a huge tax bill. We live in WA state, file jointly and for the last several years have used the standard deduction--haven't had enough to itemize.

[marctu]

I am so sorry that your husband needs this care and for the impact it is having upon you.  I am happy to read that there are resources to pay for the memory care.  So thankfully, as you know, the State of Washington has no state income tax, which is one of the reasons you may have been taking the standard deduction in the past few years. 

So the standard deduction for Tax Year 2023 is $27,700. If you are both age 65 or older then an additional $3,000 would be added to  the standard deduction.  ($1,500 for each of you over the age of 65).  So the standard deduction could be as much as $30,700.

So medical expenses are one of the itemized deductions, and these expenses will be significant.  The key is this:  You can only deduct unreimbursed medical expenses that exceed 7.5% of your adjusted gross income (AGI).   For example, if your AGI is $100,000, the first $7,750 of qualified expenses (7.5% of $50,000) don't count.

So lets do an example here.  First let's assume AGI is $100,000.  Let's assume that your taxes are $10,000, which would include real estate tax and sales tax;  there is no mortgage interest, and there are charitable contributions of $5,000.  So using the $30,700 standard deduction there would need to be at least $15,700 of medical expenses above the 7.5% of adjusted income.   So to itemize deductions there would need to be at least $23,201 ($7,500 is not allowed).   

Memory care is very expensive, so more then likely you will be itemizing deductions, but the impact is not dollar for dollar.   I am very happy that the resources are there to pay for the Memory Care for your husband.  My thoughts are with you as you go through this difficult transition. 

All the best,

Marc T.  

[Opus 17]

Assisted living is not a deductible medical expense unless you follow all the rules.

You may deduct expenses for medical care.  This includes nursing care, meaning the type of service usually provided by nurses (such as providing medication, assistance with bathing, toileting, etc.). You can't deduct expenses for companionship, security, room and board, laundry services, and so on.

If a person is in a nursing home for a medical reason, the entire cost can be taken as a medical expense.  But assisted living is not a nursing home, as the care is usually provided at a much lower level.  The facility will usually tell you that only a percentage of their cost counts as a medical expense.

To deduct the entire cost of assisted living as a medical expense, you must meet three tests:

1. The patient must have a chronic or long-term illness that will last at least one year or is expected to lead to death, as certified by a doctor.

2. The patient must require assistance with 2 or more activities of daily living (ADLs are eating, dressing, bathing, toileting, transferring, and managing continence) OR the patient must have a cognitive impairment so that they are a danger to themselves or others if left alone.

3. The care at the assisted living facility must be provided according to a written care plan that is developed by a qualified medical professional or social worker and that is reviewed and updated at least annually.

Most people with loved ones in assisted living don't complete step 3, meaning the care is not a deductible medical expense. You will want to take care of this as soon as you can. 

[michvandu]

Thank you for your kind reply.  I'm still not clear on what I should have withheld for taxes from the IRA distributions.  I'm guesstimating next years (2024) income will be approx.$252,000 gross and 7% of that for medical expenses would be $17,640.  I understand that we could only deduct the medical expenses over and above $17,640.  That would not be an issue.  Medical expenses in this facility would be 100% deductible.  My husband meets all 3 of the rules.  The cost will be approx $132,000 for the year.   We are both over 65 and wouldn't have a lot of other deductions probably not more than $5,000.  What would be our AGI and tax bracket.  Thank you

[Opus 17]

@michvandu 

With $252,000 of gross income, and $132,000 minus $18,000=$114,000 of allowable medical expense deductions, your net taxable income would be $138,000.  (It will be lower because state income tax or state sales tax is also an allowable itemized deduction, as well as mortgage interest and property taxes.  You may have more itemized deductions than you think, even if you don't donate to charity.)

At that level, your first roughly $85,000 is taxed at 12% and the rest at 22%, so that would average out to about 15% net income tax.  

You can also try the IRS calculator here

https://www.irs.gov/individuals/tax-withholding-estimator

Or try this calculator from a third party.

https://smartasset.com/taxes/income-taxes

[michvandu]

Thank you so much.  This answer has been most helpful!

[bobr97531]

For a stay at a Memory Care unit what parts are deductible?

They give the entire bill as " Accommodation - Monthly Fee. It includes all services provided including:

Nursing Care which including giving medication,

Assistance with grooming

meal assistance,

common facilities use (e.g. longue, dining room)

and room and board.

They do not break it down beyond the Monthly Fee. How to I determine what is deductible and enter it in TurboTax?

[AmyC · Accepted solution]

Provided the patient is there for necessary reasons, then all of it is deductible. Here are the rules:

Publication 502, Medical and Dental Expenses states:

• Qualified long-term care services are necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitative services, and maintenance and personal care services...This includes services connected with caring for the patient's condition, such as giving medication or changing dressings, as well as bathing and grooming the patient. These services can be provided in your home or another care facility.
• You can include in medical expenses the cost of meals at a hospital or similar institution if a principal reason for being there is to get medical care.
• You can include in medical expenses the cost of medical care in a nursing home, home for the aged, or similar institution, for yourself, your spouse, or your dependents. This includes the cost of meals and lodging in the home if a principal reason for being there is to get medical care

@bobr97531 

[Opus 17]

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@bobr97531 wrote:

They do not break it down beyond the Monthly Fee. How to I determine what is deductible and enter it in TurboTax?

---

You posted at the end of a long discussion, did you read the rest of the discussion?

You may deduct expenses for medical care.  This includes nursing care, meaning the type of service usually provided by nurses (such as providing medication, assistance with bathing, toileting, etc.). You can't deduct expenses for companionship, security, room and board, laundry services, and so on.

If a person is in a nursing home for a medical reason, the entire cost can be taken as a medical expense.  But assisted living is not a nursing home, as the care is usually provided at a much lower level.  The facility will usually tell you that only a percentage of their cost counts as a medical expense. 

To deduct the entire cost of assisted living as a medical expense, you must meet three tests:

1. The patient must have a chronic or long-term illness that will last at least one year or is expected to lead to death, as certified by a doctor.

2. The patient must require assistance with 2 or more activities of daily living (ADLs are eating, dressing, bathing, toileting, transferring, and managing continence) OR the patient must have a cognitive impairment so that they are a danger to themselves or others if left alone.

3. The care at the assisted living facility must be provided according to a written care plan that is developed by a qualified medical professional or social worker and that is reviewed and updated at least annually.

If you don't meet the three tests, and the facility won't tell you the breakdown specifically for nursing services, you will have to make a reasonable guess.